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Smart Pricing, Smart Charging

Can time-of-use rates drive the behavior of electric vehicle owners?

Fortnightly Magazine - October 2011

Current incarnations of the plug-in electric vehicle (PEV), both all-battery or hybrid, have begun to show up on American roads this year. 5 While there’s no consensus on how many sales of PEVs will garnered in the next year or two, it’s likely that they will begin making significant inroads into the new vehicle market within the decade. By 2030, the rosiest projections suggest that as many as half of all new vehicles could potentially be PEVs. 6

The numerous potential benefits of widespread PEV adoption have been highly publicized. 7 If PEV owners defer their charging regimens to late at night, PEVs could represent an ideal off-peak load that would complement new intermittent renewable energy sources such as wind power. 8 Other environmental benefits would include lower greenhouse gas emissions due to reductions in the amount of gasoline burned by vehicles’ internal combustion engines. 9 And PEV owners themselves would save money by fueling their cars with electricity rather than gasoline, a particularly valuable option when gasoline prices are high.

Nevertheless, and simply by virtue of how they charge their vehicles, PEV owners can transform these impacts from blessing to curse. Contrary to many expectations, PEVs aren’t likely to produce unmanageable demands on generation resources (see “The PEV Problem: Brownout or Blowout?”) . Rather, the real challenge will arise at the distribution level. What would happen if half of the residents of a small neighborhood purchased PEVs and charged their vehicles at the same time in the evening? The resulting local spike in demand could blow the transformers feeding those homes and wreak havoc on the distribution system. Not only is this a serious concern, it’s something that could happen soon if early adopters of PEVs cluster in specific neighborhoods. 10 In other words, this problem could materialize long before significant numbers of PEVs are on the road.

This potential problem has induced utilities to encourage off-peak charging behavior by allowing customers who own PEVs take all or part of their electric service on some form of TOU pricing, often at higher voltages to facilitate fast charging. Many have approved TOU tariffs specially dedicated to PEVs. Examples of TOU rates from a few sample utilities are summarized in Figure 1.

In theory, TOU pricing would appear to be a sine qua non for charging PEVs efficiently, since car owners can lower their electric bills by charging during off-peak hours. But how important is this economic element in motivating charging behavior? To what extent would customers behave differently if enrolled in a TOU rate? A time-varying rate structure might strongly affect some customers, but what about PEV owners who bought their cars because they’re more green or more affluent than other customers? These questions need answering through sound empirical work that currently is only in the embryonic stage.

To guide our answer, we probe this issue using the Nissan LEAF 11 as an example, along with three illustrative TOU rates based on tariffs being considered by a utility serving a medium-size urban area. 12 We also suggest ways in which utilities can